Annual financial statements

Transcription

1 Annual financial statements Directors responsibility for financial statements Company secretary s certificate Report by the independent auditors Directors report Balance sheets Income statements Statements of changes in equity Cash flow statements Notes to the financial statements Glossary of terms Investor relations Notice of annual general meeting Form of proxy 102

2 Directors responsibility DIRECTORS RESPONSIBILITY FOR THE ANNUAL FINANCIAL STATEMENTS The company s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting statements that are reasonable in the circumstances. The annual financial statements and group annual financial statements which appear on pages 103 to 162 were approved by the directors and are signed on their behalf on 5 October 2007 by: Patrice Motsepe Executive chairman André Wilkens Chief executive officer Johannesburg 5 October 2007 Certificate of the company secretary In terms of Section 268G(d) of the Companies Act, 61 of 1973, as amended, I certify that the company has, in respect of the year under review, lodged with the Registrar of Companies all such returns as are required of a public company in terms of this Act and that all such returns are, to the best of my knowledge, true, correct, and up to date. Patricia Smit Company secretary Johannesburg 5 October

3 Report of the independent auditors TO THE MEMBERS OF LIMITED We have audited the annual financial statements and group annual financial statements of African Rainbow Minerals Limited, which comprise the directors report, the balance sheet as at 30 June 2007, the income statement, the statement of changes in equity and cash flow statement for the year then ended, a summary of significant accounting policies and other explanatory notes, as set out on pages 105 to 162. DIRECTORS RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The company s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. AUDITOR S RESPONSIBILITY Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. OPINION In our opinion, the financial statements present fairly, in all material respects, the financial position of the company and group as of 30 June 2007, and of the financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa. Ernst & Young Inc. Registered Accountants and Auditors Johannesburg 5 October

4 Directors report The directors have pleasure in presenting their report and the annual financial statements of the African Rainbow Minerals Limited ( ARM or the company ) group and the company for the year ended 30 June NATURE OF BUSINESS ARM, its subsidiaries, joint ventures and associates explore, develop, operate and hold interests in the mining and minerals industry. The current operational focus is on precious metals, ferrous metals and alloys, which include platinum group metals, nickel, iron ore, manganese ore, chrome ore, ferromanganese and ferrochrome alloys. TEAL Exploration & Mining Incorporated, listed on the Toronto Stock Exchange and the JSE Limited, holds ARM s non-south African exploration portfolio. The exploration portfolio includes copper projects in Zambia, a copper-cobalt project in the Democratic Republic of Congo (DRC) and a gold project in Namibia.Through the formation of ARM Coal on 1 July 2006 the company has added coal to its asset portfolio with an effective economic interest of 10.2 percent in Xstrata Coal South Africa s existing coal mining interests. ARM Coal has a 51 percent interest in the joint venture holding the Goedgevonden Coal Project which gives ARM an effective 26 percent economic interest in the Goedgevonden Coal Project. In addition, on 1 September 2006 ARM acquired a direct 10 percent interest in the existing coal operations of Xstrata Coal South Africa. During the year under review, ARM Coal was granted coal export throughput capacity in the new expansion at RBCT of 3.2 million tonnes per annum, thereby facilitating the release of the Goedgevonden Coal Project. HOLDING COMPANY The company s largest shareholder is African Rainbow Minerals & Exploration Investments (Proprietary) Limited (ARMI), holding percent of the issued ordinary share capital. The ARM BBEE Trust owns 13.64% of the issued ordinary share capital of the company. ARM is one of the largest black-controlled mineral resources companies in South Africa. ARM is committed to the spirit and objectives of the Mineral and Petroleum Resources Development Act, 2002 and the Broad-based Socio-economic Charter for the South African Mining Industry (the Mining Charter). To this end and for the benefit of Historically Disadvantaged South Africans (HDSAs), ARM has created the BBEE Trust. A rigorous process of allocating 20.8 million shares equivalent to 10 percent of ARM s issued share capital to various trust beneficiaries, which include various church groups, union representatives, seven broad-based provincial upliftment trusts, several community, business and traditional leaders and a broad-based women upliftment trust, has been completed. REVIEW OF OPERATIONS The reader is referred to reviews by the chairman, the chief executive officer, the acting chief financial officer and the review of operations, which report on the group s activities and results for the year ended 30 June 2007, on pages 5 to 56. FINANCIAL The company s annual financial statements and accounting policies appear on pages 103 to 162 of this document. The results for the year ended 30 June 2007 have been prepared in accordance with International Financial Reporting Standards (IFRS). These financial statements fairly present the state of affairs of the company and adequate accounting records have been maintained. BORROWINGS Gross borrowings at 30 June 2007 were R4.0 billion compared to R2.3 billion at 30 June The increase is largely due to debt incurred to finance the investment in Xstrata Coal South Africa and to fund the completion of the Two Rivers Platinum Mine. During the financial year, ARM provided a US$20 million bank guarantee to assist in securing exploration funding for TEAL. After the year-end ARM has agreed to increase this guarantee to US$50 million. ARM s borrowing powers are in accordance with its Articles of Association and are unlimited subject to any regulation that may be made by the company in general meetings. There are at present no such regulations. TAXATION The latest tax assessment for the company relates to the year ended June All tax submissions up to and including June 2005 have been submitted. 105

5 Directors report continued The company is in dispute with the South African Revenue Services (SARS) over the deductibility of a loss claimed in its 1999 tax submission. The matter is currently under appeal with the Special Tax Court trial having been held in August Judgement is awaited. The liability for tax is R45 million excluding interest. The interest thereon is estimated at R47 million to June The company results include full provision for this estimated liability. There has been no change during the year in the status of the contingent liability for tax reported under note 32 on page 155. SUBSIDIARY COMPANIES The company s direct and indirect interests in its principal subsidiaries, associates, joint ventures and investments are reflected in separate reports. Refer to pages 161 to 162. DIVIDEND A dividend of 150 cents per share which equates to a distribution of approximately R315 million, was declared on 3 September 2007 and was paid to shareholders on 1 October ARM is continuing its programme of organic growth projects and is seeing the benefits flowing through in attributable earnings and cash flow. Although substantial capital will be expended for ongoing growth, the board believes that, ARM s net debt position is at an appropriate level as sufficient cash flow and facilities exist to fund developing projects. POST-BALANCE SHEET EVENTS The ARM balance sheet at 30 June 2007 reflects a marked-to-market investment in Harmony Gold Mining Company Limited ( Harmony ) of R6,380 million, based on a Harmony share price of R100 per share at that date. The Harmony share price closed at R74 per share on 5 October 2007 resulting in a R1 657 million decrease in the value of the investment. Changes in the value of the investment in Harmony are accounted for by ARM through the statement of changes in equity, net of deferred capital gains tax, and the investment is reflected at market value in the balance sheet. SHARE CAPITAL The share capital of the company, both authorised and issued, is set out in note 11 on page 136 of the annual financial statements. The company in general meeting is required to authorise the disposal of any unissued share capital. No such authorisation has been granted and no such authority will be sought at the forthcoming Annual General Meeting. SHAREHOLDER ANALYSIS A comprehensive analysis of shareholders together with a list of shareholders beneficially holding, directly or indirectly, in excess of five percent of the ordinary shares of the company at 30 June 2007, is set out on pages 165 to 167. DIRECTORATE The names and details of the directors of the company are reflected on pages 92 to 95. The Articles of Association provides for one-third of the previously elected directors to retire by rotation. The non-executive directors affected by this requirement are Dr Bakane-Tuoane and Messrs Chissano, King and Maditsi. The executive director affected by this requirement is Mr. Steenkamp. Brief curricula vitae of the directors seeking re-election may be found in the notice of Annual General Meeting. Service contracts have been entered into between the company and the executive directors. These contracts are subject to one month s notice by either party. Directors fees are payable quarterly in arrears and were increased at the annual general meeting held on 24 November 2006 and were effective from 1 July Following a study of directors fees in the mining and other industries, it was found that ARM s fees were in the lower quartile of the market. An adjustment to rectify the situation has been approved by the board. A motion will be proposed at the forthcoming Annual General Meeting, in accordance with the articles of association, to increase the directors fees payable annually per meeting. Please refer to the Notice of Annual General Meeting. 106

6 DIRECTORS EMOLUMENTS The following emoluments were paid to directors during the year ended 30 June 2007 All figures in R000 Board and Salary Accrued Pension Reimbursive Consultancy Total Total committee bonus Scheme allowances fees fees contributions Executive directors P T Motsepe Nil Nil A J Wilkens F Abbott W M Gule Nil K S Mashalane# P C Rörich# Nil J C Steenkamp Non-executive directors M M M Bakane-Tuoane J A Chissano M W King A K Maditsi P J Manda *** Nil Nil 574 J R McAlpine R P Menell **** Nil Nil 426 P S Sibisi ## R V Simelane M V Sisulu Z B Swanepoel * Paid by subsidiary (US$) J A Chissano R P Menell M W King # Appointed 9 May ## Dr Sibisi advised that he would not be available for re-election at the annual general meeting which was held on 24 November *** Resigned on 13 February **** Executive director of TEAL and non-executive director of ARM. FEES* Proposed effective 1 July 2007 Approved effective 1 July 2006 Board of directors Annual Per meeting Annual Per meeting Chairman Director # ARM s executive directors have ceded their directors and committee fees to the company. 107

7 Directors report continued BOARD COMMITTEES On the advice of the Remuneration committee, the board approved the following board committee meeting attendance fees payable to members with effect from 1 July Audit committee Proposed effective Approved effective 1 July July 2006 Chairman Member Other board committees* Chairman Member * Other board committees comprise Empowerment, Investment, Nominations, Remuneration and Sustainable Development committees. INTERESTS OF DIRECTORS The direct and indirect interests of the directors of the company in the issued share capital of the company at 30 June 2007 were as follows. 30 June June 2006 Ordinary shares Beneficial Non-beneficial Beneficial Non-beneficial Direct interests Executive directors R P Menell Nil Nil Nil Non-executive directors Nil Nil Nil Nil Total Nil Nil Nil Indirect interests Executive directors PT Motsepe Nil Nil Non-executive directors Nil Nil Nil Nil Total Nil Nil No material changes in holding were effected between year-end and the date of this report. 108

8 DIRECTORS OPTIONS Annexure A OPTIONS The table below reflects share option entitlements accruing to executive directors and the transactions that occurred during the year to 30 June Refer to Option Vesting Dates on page 110 as to exercising of options. DIRECTORS OPTIONS Directors P T Motsepe F Abbott W M Gule K S Mashalane R P Menell P C Rörich J C Steenkamp A J Wilkens Category Executive Executive Executive Executive Executive Executive Executive Executive No. of Issue No. of Issue No. of Issue No. of Issue No. of Issue No. of Issue No. of Issue No. of Issue Options Price Options Price Options Price Options Price Options Price Options Price Options Price Options Price Held at 1 July 2006 Number Average price per option R28.96 R29.60 R30.49 R33.12 R35.15 R29.67 R30.03 R28.96 Details of individual allocations: Granted 3 Feb R Jun R R Sep R R Jul R Sep R R Aug R Aug R Dec R R R R R R Apr R Jun R Oct R R R R R R R37.00 Granted during the year 1 Nov Issue price per option R73.99 R73.99 R73.99 R73.99 R73.99 R73.99 R73.99 Exercised during the year Number Average issue price per option R28.84 R29.84 R32.62 R35.15 R30.39 R34.15 Gross sale price per option R93.24 R R97.47 R79.53 R88.08 R92.73 Held at 30 June 2007 Number Average price per option R41.17 R50.76 R50.02 R59.43 R47.52 R44.40 R41.38 Latest expiry date 1/11/2014 1/11/2014 1/11/2014 1/11/2014 1/11/2014 1/11/2014 1/11/2014 Details of individual allocations: Granted 15 Dec R R R R R R Apr R Jun R Oct R R R R R R R Nov R R R R R R R

9 Directors report continued SHARE INCENTIVE SCHEME The company has an employee share incentive scheme available to certain full-time employees. Total options outstanding under the scheme shall not exceed 10 percent of the total issued share capital of the company. The following are summaries of particulars required in terms of the scheme and JSE s Listings Requirements. Ordinary shares in issue The Scheme Range of strike prices Schedule of movements Shares Shares Options Options From To Ordinary shares in issue at 1 July Options previously granted at 1 July * R16.25 R39.50 Shares allotted Share options exercised *( ) ( ) R16.25 R39.50 Share options Granted to participants# * R73.99 R Forfeited ( ) ( ) R27.00 R73.99 Balance at 30 June R17.00 R Movement subsequent to year end Shares allotted Share options exercised ( ) R27.00 R38.00 Share options Granted to participants nil Forfeited nil Balance at 28 September Balance available to be issued in terms of the scheme Maximum number of options permitted by the scheme * Inclusive of options granted to executive directors # Refer summary of options outstanding OPTION VESTING DATES No options may be exercised prior to the first anniversary of the issue date relative to such options, up to a third of such options may be exercised each year until the third anniversary of the issue date. Options may not be exercised later than the eighth anniversary of the issue date, after which such options lapse. Number of Average issue Number of Average issue options price per option options price per option Options outstanding at 30 June R50.39 Vested 3 May R October R December R December R June R June R32.00 Vesting on 11 October R October R June R November R December R June R March R November R November R June R June R November R June R November R June R

10 SPECIAL RESOLUTIONS No special resolutions were passed by ARM and its subsidiaries during the period 1 July 2007 to the date of this report. STOCK EXCHANGE LISTINGS The company s shares are listed through a primary listing on the JSE Limited, South Africa under Resources Mining, Other Mineral Extractors and Mines. An unsponsored American Depositary Receipt programme with JP Morgan Chase Bank is also available to investors over the counter (level one) for private transactions. STRATE (SHARE TRANSACTIONS TOTALLY ELECTRONIC) The company s shares were dematerialised on 5 November Should members wish to trade certificated ARM (previously Avmin) shares on the JSE Limited (JSE) they are urged to deposit them with a CSDP (Central Securities Depository Participant) or qualifying stockbroker, as soon as possible. Trading in the company s shares on the JSE is only possible if they exist in electronic format in the STRATE environment. If members have any queries, they should contact the company s transfer secretaries, Computershare Investor Services 2004 (Proprietary) Limited, whose details are reflected on the inside back cover of this report. GOING CONCERN The directors have no reason to believe that the business will not be a going concern in the year ahead. 111

11 Balance sheets Group Company As at 30 June Notes Rm Rm Rm Rm ASSETS Non current assets Property, plant and equipment Investment property 3, Intangible assets Deferred tax assets Loans and long-term receivables 5 9 Investment in associates Other investments Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets EQUITY AND LIABILITIES Capital and reserves Ordinary share capital Share premium Other reserves Retained earnings Shareholders interest in capital and reserves Minority interest Total shareholders interest Non-current liabilities Long-term borrowings interest bearing Deferred tax liabilities Long-term provisions Current liabilities Trade and other payables Short-term provisions Taxation Overdrafts and short-term borrowings interest bearing Overdrafts and short-term borrowings non-interest bearing Total equity and liabilities

12 Income statements Group Company For the year ended 30 June Notes Rm Rm Rm Rm Revenue Sales Cost of sales (3 341) (3 304) (214) (191) Gross profit Other operating income Other operating expenses (552) (373) (250) (167) Profit from operations before exceptional items Income from investments Finance costs 22 (370) (134) (152) (43) Income from associate 5 16 Profit before taxation and exceptional items Exceptional items Profit before taxation Taxation 24 (781) (377) (162) (80) Profit for the period Attributable to: Minority interest Equity holders of ARM Additional information Headline earnings (R million) Headline earnings per share (cents) Basic earnings per share (cents) Fully diluted basic earnings per share (cents) Fully diluted headline earnings per share (cents) Number of shares in issue at end of year (thousands) Weighted average number of shares in issue (thousands) Weighted average number of shares used in calculating fully diluted earnings per share (thousands) Net asset value per share (cents) EBITDA before exceptional items (R million) Dividend declared after year-end (cents per share)

13 Statements of changes in equity Share Revaluation Total Total capital and of listed Retained shareholders minority premium investments Other * earnings of ARM interest Total for the year ended 30 June Note Rm Rm Rm Rm Rm Rm Rm Group Balance at 30 June (821) Revaluation of listed investments Deferred tax on revaluation of listed investment (516) (516) (516) Net impact of revaluation of listed investment Transfer out of minority interest, Assmang now accounted for as a joint venture (1 504) (1 504) TEAL minorities at listing Dividends paid to minorities (60) (60) Basic earnings Share based payments Share options exercised Realignment of currency Other 2 (1) 1 1 Balance at 30 June Revaluation of listed investments 6 (880) (880) (880) Deferred tax on revaluation of listed investment Net impact of revaluation of listed investment (752) (752) (752) Basic earnings Share based payments Share options exercised Realignment of currency Other Balance at 30 June * Other reserves consist of an insurance contingency of R8 million (2006: R8 million; 2005: R6 million), general reserve of R32 million (2006: R32 million; 2005: R32 million), share based payments of R93 million (2006: R45 million; 2005: R11 million); foreign currency translation reserve of R4 million (2006: R3 million; 2005: R Nil). 114

14 Share Revaluation capital and of listed Retained premium investments Other * earnings Total For the year ended 30 June Note Rm Rm Rm Rm Rm Company Balance at 30 June (1 027) Revaluation of listed investments Deferred tax on revaluation of listed investment (516) (516) Net impact of revaluation of listed investment Basic earnings Share based payments Share options exercised Balance at 30 June Revaluation of listed investments 6 (880) (880) Deferred tax on revaluation of listed investment Net impact of revaluation of listed investment (752) (752) Basic earnings Share based payments Share options exercised Balance at 30 June * Other reserves consist of a general reserve of R35 million (2006: R35 million; 2005: R35 million); share based payment of R74 million (2006: R36 million; 2005: R11 million). 115

15 Cash flow statements Group Company For the year ended 30 June Notes Rm Rm Rm Rm CASH FLOW FROM OPERATING ACTIVITIES Cash receipts from customers Cash paid to suppliers and employees (3 135) (3 613) (330) (365) Cash generated from operations Interest received Interest paid (295) (137) (150) (38) Dividends received Dividends paid to minorities (60) Taxation paid 28 (317) (384) (104) (70) Net cash inflow from operating activities CASH FLOW FROM INVESTING ACTIVITIES Additions to property, plant and equipment to maintain operations (913) (636) (200) (24) Additions to property, plant and equipment to expand operations (946) (859) (19) Proceeds on disposal of property, plant and equipment Investment in joint venture (409) Investment in associate 5 (841) (432) Proceeds on disposal of investments 2 2 Net cash effect of disposal of 0.35 percent of Assmang Increase in investment loans and receivables (201) (387) Investment acquired (12) Net cash outflow from investing activities (2 691) (1 444) (1 240) (382) CASH FLOW FROM FINANCING ACTIVITIES Proceeds on exercise of share options Funding received from minority shareholders at TEAL listing 226 Long-term borrowings raised Long-term borrowings repaid (73) (183) (65) Increase/(decrease) in short-term borrowings 72 (91) (72) (73) Net cash inflow from financing activities Net increase/(decrease) in cash and cash equivalents (8) Cash and cash equivalents at beginning of year (132) (124) Foreign currency translation on cash balance 1 10 Cash and cash equivalents at end of year (132) Cash generated from operations per share (cents)

16 Notes to the financial statements 1. ACCOUNTING POLICIES STATEMENT OF COMPLIANCE The consolidated group and company annual financial statements are prepared in accordance with and comply with International Financial Reporting Standards (IFRS) and Interpretations of those standards, as adopted by the International Accounting Standards Board (IASB) and applicable legislation. During the current financial year the following new and revised accounting standards were adopted by ARM: IAS 19 IAS 21 IAS 39 IFRS 6 IFRIC 4 IFRIC 6 Amendment on employee benefits, actuarial gains and losses, group plans and disclosures. Amendment on the effect of changes in foreign exchange rates net investment in a foreign operation. Amendment on the fair value option and financial guarantee contracts. Exploration for and evaluation of mineral resources. Determining whether an arrangement contains a lease. Liabilities arising from participating in a specific market waste electrical and electronic equipment. IFRIC 7 Applying the restatement approach under IAS 29 financial reporting in hyperinflationary economies. IFRIC 8 Scope of IFRS 2. IFRIC 9 Reassessment of embedded derivatives. AC 503 Accounting for black economic empowerment (BEE) transactions. IMPACT OF NEW STANDARDS IFRS 6: Exploration for and evaluation of mineral resources effective 1 July Management has revised the company policy in accordance with the guidelines of IFRS 6 establishing more stringent rules for the capitalisation of exploration costs. In accordance with the transitional provisions of IFRS 6, the standard has been applied retrospectively. No prior year impact results from the changed policy. IFRIC 4: Determining whether an arrangement contains a lease effective 1 July IFRIC 4 provides guidance for determining whether an arrangement, that does not take the legal form of a lease but conveys a right to use an asset is, or contains, a lease that should be accounted for in accordance with IAS 17 Leases. For the 2007 financial year the application of this new interpretation has resulted in the recognition of a financial lease liability and a related asset amounting to R26 million. IAS 39: Amendment on the fair value options and financial guarantee contracts. In terms of this amendment, when financial guarantees are issued they need to be recognised at fair value. The effect of adopting this amendment was R2 million for group and R6 million for company. These amounts comprise an increase in investment and payables for guarantees issued in favour of TEAL (R3 million) and Two Rivers (R1 million), which eliminates on consolidation, and a R2 million increase in finance costs and payables for a guarantee issued in favour of Harmony. None of the other standards or interpretations adopted had any impact on the financial statements. BASIS OF PREPARATION The principal accounting policies as set out below are consistent in all material aspects with those applied in the previous years except for the above mentioned new and revised standards. The consolidated group and company financial statements have been prepared on an historical cost basis except for the revaluation of availablefor-sale financial assets, adjusted directly through equity and financial assets and financial liabilities (including derivative instruments) at fair value through the income statement. The financial statements are presented in South African Rands and all values are rounded to the nearest million (Rm) unless otherwise indicated. BASIS OF CONSOLIDATION The consolidated financial statements comprise the financial statements of African Rainbow Minerals Limited and its subsidiaries, joint ventures and associates at 30 June each year. SUBSIDIARY COMPANIES Subsidiary companies are investments in entities in which the company has control over the financial and operating decisions of the entity. Subsidiaries are consolidated in full from the date of acquisition, being the date on which the group obtains control and continues to be consolidated until the date such control ceases. Minority interest represents the portion of profit or loss and net assets not held by the group and are presented in the income statement and within equity in the consolidated balance sheet, separately from parent shareholders equity. Investments in subsidiaries in the company financial statements are accounted for at cost less impairment. JOINT VENTURES Joint ventures are contractual agreements whereby the group has joint control over the financial and operating policy decisions of the enterprise. The group attributable share of the assets, liabilities income and expenses and cash flows of such jointly controlled entities are proportionately consolidated on a line-by-line basis in the group financial statements. Unincorporated joint ventures are consolidated in the company financial statements on the same basis as above. Jointly controlled entities are accounted for in the company financial statements at cost less impairment. INVESTMENT IN AN ASSOCIATE An associate is an investment in an entity in which the group has significant influence and is neither a subsidiary nor a joint venture of the group. At group level investments in associates are accounted for using the equity method of accounting. Investments in the 117

17 Notes to the financial statements continued associates are carried in the balance sheet at cost plus post-acquisition changes in the group s share of net assets of the associates, less any impairment in value. The income statement reflects the group s share of the post acquisition profit after tax of the associate. After application of the equity method, the group determines whether it is necessary to recognise any additional impairment losses. Investments in associates in the company financial statements are accounted for at cost less impairment. BUSINESS COMBINATIONS The purchase method of accounting is used to account for the acquisition of subsidiaries, joint ventures and associates by the group. The cost of an acquisition is measured as the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the group s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. INTER-COMPANY TRANSACTIONS AND BALANCES Consolidation principles relating to the elimination of inter-company transactions and balances and adjustments for unrealised intercompany profits are applied in all intra-group dealings, for all transactions with subsidiaries, associated companies or joint ventures. CURRENT TAXATION The charge for current tax is based on the results for the year as adjusted for income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income. Taxation is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case the tax amounts are recognised in equity. DEFERRED TAXATION A deferred tax asset is the amount of income taxes recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses and the carry forward of unused tax credits. A deferred tax liability is the amount of income taxes payable in future periods in respect of taxable temporary differences. Temporary differences are differences between the carrying amount of an asset or liability and its tax base. The tax base of an asset is the amount that is deductible for tax purposes if the economic benefits from the asset are taxable or the carrying amount of the asset if the economic benefits are not taxable. The tax base of a liability is the carrying amount of the liability less the amount deductible in respect of that liability in future periods. The tax base of revenue received in advance is the carrying amount less any amount of the revenue that will not be taxed in future periods. Deferred tax is recognised for all temporary differences, unless specifically exempt, at the tax rates that have been enacted or substantially enacted at the balance sheet date and is not discounted. A deferred tax asset is only recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax arising on investments in subsidiaries, associates and joint ventures is recognised except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. SECONDARY TAXATION ON COMPANIES Secondary tax on companies (STC) is recognised on the declaration date of all dividends and is included in the taxation expense in the income statement in the related period. Unutilised STC credits are raised as deferred tax assets to the extent that a dividend is expected to be paid in the foreseeable future. PROVISIONS Provisions are recognised when the following conditions have been met: A present legal or constructive obligation, to transfer economic benefits as a result of past events exists; and A reasonable estimate of the obligation can be made. A present obligation is considered to exist when there is no realistic alternative but to make the transfer of economic benefits. The amount recognised as a provision is the best estimate at the balance sheet date of the expenditure required to settle the obligation. Only expenditure related to the purpose for which the provision is raised is charged against the provision. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the 118

18 time value of money and, where appropriate, the risks specific to the liability. Insurance provisions Claims (net of anticipated recoveries under reinsurance arrangements when the right to set off exists) notified but not settled at yearend, and incurred at year-end but not reported, have been provided for using the best information available at the time. The estimates include provision for inflation and other contingencies arising in the settlement of claims. ENVIRONMENTAL REHABILITATION OBLIGATION The estimated cost of rehabilitation, comprising liabilities for decommissioning and restoration, is based on current legal requirements and existing technology and is reassessed annually. Cost estimates are not reduced by the potential proceeds from the sale of assets. Decommissioning The present value of estimated decommissioning obligations, being the cost to dismantle all structures and rehabilitate the land on which it is located that arose through establishing the mine, is included in long-term provisions. The unwinding of the obligation is included in the income statement under finance cost. The initial related decommissioning asset is recognised in property plant and equipment. Restoration The present value of the estimated cost of restoration, being the cost to correct damage caused by ongoing mining operations, is included in long-term provisions. This estimate is revised annually and any movement is charged against income. Expenditure on ongoing rehabilitation is charged to the income statement as incurred. ENVIRONMENTAL REHABILITATION TRUST FUNDS Annual payments are made to rehabilitation trust funds in accordance with statutory requirements. The investment in the trust funds are carried at cost in the company. These funds are consolidated as African Rainbow Minerals group companies are the sole contributors to the funds and exercise full control through the respective boards of trustees. The balances are included under restricted cash. FINANCIAL INSTRUMENTS Financial instruments recognised on the balance sheet include cash and cash equivalents, investments, trade and other receivables, trade and other payables and long- and short-term borrowings. Initial recognition when the group becomes party to their contractual arrangements is at fair value plus directly attributable transaction costs, unless the instrument is carried at fair value through profit and loss when the costs are recognised in the income statement. Subsequent recognition is at fair value or at amortised cost. The recognition methods adopted are disclosed in the individual policy statements associated with each item. At each balance sheet date an assessment is made whether any financial assets are impaired. In the case of any impairment the asset is written down to it s recoverable amount in the income statement.the group does not apply hedge accounting. Financial guarantees Financial Guarantee Contracts that are not considered to be insurance contracts are initially recognised at fair value and subsequently remeasured at the higher of the amount determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18 Revenue. Derivative instruments Derivatives, including embedded derivatives, are subsequently measured at fair value. Fair value adjustments are recognised in the income statement. Forward exchange contracts are valued at the balance sheet date using the forward rate available at the balance sheet date for the remaining maturity period of the forward contract. Any gain or loss from valuing the contract against the contracted rate is recognised in the income statement. A corresponding forward exchange asset or liability is recognised. On settlement of a forward exchange contract, any gain or loss is recognised in the income statement. Cash and cash equivalents Cash and cash equivalents are measured at amortised cost. Cash that is subject to legal or contractual restrictions on use is classified separately. Investments Investments other than investments in subsidiaries, associates and joint ventures, are considered to be available for sale financial assets and are subsequently carried at fair value. Increases and decreases in fair values of available for sale investments are reflected in the revaluation reserve. On disposal of an investment, the balance in the revaluation reserve is recognised in the income statement.where active markets exist, fair values are determined with reference to the stock exchange quoted selling prices at the close of business on the balance sheet date. Where a reliable fair value cannot be determined, investments are carried at cost. All regular way purchases and sales of financial assets are recognised on the trade date, ie the date the group commits to purchase the asset. Receivables Trade receivables, which generally have day terms, are initially recognised at fair value and subsequently at amortised cost. An impairment is recognised when there is evidence that an entity will not be able to collect all amounts due according to the original terms of the receivables. The impairment is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rates. The amount of the impairment is charged to the income statement. Payables Trade and other payables are not interest bearing and are initially recorded at fair value and subsequently at amortised cost. 119

19 Notes to the financial statements continued Interest bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue cost, and any discount or premium on settlement. Gains and losses are recognised in the income statement when the liabilities are derecognised, as well as through the amortisation process. Derecognition of financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where: the rights to receive cash flows from the asset have expired ; the group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass through arrangement; or the group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risk and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the group has transferred its right to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the group s continuing involvement of the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the group could be required to repay. Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement. Set-off If a legally enforceable right exists to set-off recognised amounts of financial assets and liabilities and the group intends to settle on a net basis or to realise the asset and settle the liability simultaneously, all related financial effects are netted. INTANGIBLE ASSETS Intangible assets acquired are reflected at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over their useful economic life and assessed for impairment where there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with finite useful life are reviewed at least at each financial year-end. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset. Internally generated intangible assets are not capitalised and expenditure is reflected in the income statement in the year in which the expenditure is incurred. INVESTMENT PROPERTY Investment properties are carried at cost and depreciated on a straight-line basis over their estimated useful lives to an estimated residual value. Where the residual value exceeds the carrying amount, amortisation is continued at a zero charge until its residual value subsequently decreases to an amount below the carrying amount. Where the building has changed from owner occupied to investment property in order to earn rentals and for capital appreciation, the cost is the revalued amount if applicable. An impairment is taken in the income statement when the recoverable amount is less than the carrying amount. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment other than land and buildings, are stated at cost less accumulated depreciation and accumulated impairment losses. Land and buildings Land and buildings are carried at cost. Land is only depreciated where the form is changed so that it affects its value. Land is then depreciated on a straight-line method over the mining activity to a maximum of 25 years to its estimated residual value. Buildings are depreciated on a straight-line basis over their estimated useful lives to an estimated residual value, if such value is significant. The annual depreciation rates used vary between two and five percent. New acquisitions and additions to existing land and buildings are reflected at cost. Mine development and decommissioning Costs to develop new ore bodies, to define further mineralisation in existing ore bodies and to expand the capacity of a mine, or its current production, as well as the decommissioning thereof, are capitalised. Development costs to maintain production are expensed as incurred. Mine development and decommissioning assets are amortised using the units-of-production method based on estimated proven and probable ore reserves. Proven and probable ore reserves reflect estimated quantities of economically recoverable reserves which can be recovered in future from known mineral deposits. These reserves are reassessed annually. The maximum period of amortisation using this method is 25 years. Where the reserves are not determinable due to their scattered nature, the 120